Dentsu adds to global agency gloom, slipping back in 2019

Japanese ad and media giant Dentsu is cutting its forecast for 2019 (although it doesn’t specify to what) following a disappointing first half when revenue was marginally up but organic growth went into reverse: 1.5 per cent for the company as a whole, 2.1 per cent for the Japanese business and one per cent for Dentsu Aegis Network (DAN), mostly media buying outside Japan.

Japan’s numbers are blamed on declining traditional media ad budgets and the lack of big sporting events, DAN’s on weakness in the APAC region, chiefly China and Australia.

It’s much the same message as Publicis Groupe and may well give an indication of WPP’s forthcoming results. The two big US holding companies Omnicom and Interpublic are doing better although we wait to see how long they can defy seeming gravity.

Interestingly the half-time numbers reveal that the whole company’s operating margin is ten per cent, a thumping 19 per cent in Japan but only 3.6 per cent at DAN – reflecting the smaller margins in media buying presumably. The squeeze ins well and truly on at DAN (the Aegis bit is about to be dumped) following the departure of long-serving DAN CEO Jerry Buhlmann.

Digital now accounts for 48.9 per cent of Dentsu’s overall business but that, too, has lower margins than traditional advertising.

Dentsu says it plans to move to a more traditional holding company structure in 2020, which may mean tighter control of DAN which was the main engine of growth a couple of years ago.

More evidence then of the growth problems facing the holding companies as well as individual agencies.

The harsh fact is that while worldwide advertising (which includes lots of search) is growing, the amount spent with agencies is in decline even though they appear to be doing more work. Facebook and Google to the fore, one suspects.

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About Stephen Foster

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Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.